Lagenda’s 9M21 core PATMI of RM144.0m (+52.5% YoY) matched expectation. For QoQ, bottom line showed an increase of 6.1% attributable to new acquisition from property segment as well as higher trading business. Meanwhile for YoY, net profit declined by 8.6% from the lower progressive billing recognition (NRP restrictions) as well as higher raw materials costs. The company secured a strong confirmed sales and booking of RM1.2bn in 9M21. We are expecting a stable showing from the company backed by its robust take up rates on the affordable landed market. Maintain our forecast and BUY recommendation with unchanged TP of RM2.01 based on 20% discount on estimated RNAV of RM2.51 per share.

Within expectations. Lagenda recorded 3Q21 core PATMI of RM45.5m (+6.1% QoQ, -8.6% YoY), which brought 9M21 core PATMI to RM144.0m (+52.5% YoY), accounting for 66% of our and consensus expectation. We deem the results to be within expectation as we are expecting stronger contribution in 4Q from higher progressive billings recognition on the back of pick up in construction activities (currently operating at full capacity under strict SOPs to catch-up on construction progress).

QoQ. Top-line rose by 8.6% owing to higher contribution from property development segment from the acquisition of a subsidiary (namely Maxitanah Sdn Bhd) as well as the higher contribution from trading business segment. In turn, core PATMI also increased by 6.1% in tandem with higher revenue.

YoY. Lower revenue by 4.9% was attributable to lower progressive billings from delay in construction activities caused by NRP restrictions. COGS was higher by 9.3% as we believe could be due to higher raw materials prices. Sequentially, core PATMI showed a decrement of 8.6%.

YTD. Top-line increased 38% from the revenue recognition of asset injection of Blossom Eastland, Rantau Urusan and Yik Wang Trading (part of their restructuring exercise into property development), which in turn increased core PATMI by 52.5%.

Sales and booking. c.RM1.2bn of confirmed sales and booking were achieved in 9M21, where the sales mostly came from the Bandar Baru Setiawan Perdana (BBSAP) township. With historical conversion rate of >90%, we believed Lagenda is on track to achieve (or even exceed) its sales target of RM1bn this year. Unbilled sales stood at RM591m as of 3Q21, representing a cover ratio of 1.1x.

Outlook. We expect a stable showing backed by its robust take-up rates on the affordable landed market. The latest government measure on 12MP focusing to build more affordable houses and ease the access of financing should bode well with Lagenda’s business model.

Forecast. Unchanged.

Maintain BUY; TP: RM2.01. We maintain our BUY recommendation with unchanged TP of RM2.01 based on 20% discount on estimated RNAV of RM2.51 per share. We like Lagenda for its exposure to the underserved affordable housing segment, stable clientele base (public sector workers with government financing access), low land cost, high booking conversion rate and superior margins.

Source: Hong Leong Investment Bank Research - 16 Nov 2021